How to Lower Your Mortgage Payment by Refinancing
For many of us, the mortgage payment often stands as the most significant monthly expense. With interest rates hovering at or near historic lows in the current market, there’s an opportunity to potentially reduce your monthly mortgage payments through refinancing. Let’s explore how refinancing can help you cut down on your mortgage costs.
Refinance to a lower rate
Various TV and online news outlets have frequently highlighted that interest rates are currently exceptionally low. Depending on the terms of your original mortgage, refinancing could lead to considerable savings. If you refinance to a lower mortgage interest rate, known as a rate and term refinance, you could benefit significantly, especially if your initial mortgage was an Adjustable-Rate Mortgage (ARM) and you want to lock in a fixed interest rate to avoid market fluctuations.
Numerous factors can influence your decision to refinance. However, if your current mortgage interest rate is at least 0.50%-0.75% higher than today’s market rates, it’s advisable to discuss your options with a mortgage loan officer. You can also check today’s market rates on our website.
Refinance to a longer term
Opting to refinance to a longer-term mortgage provides you with more time to repay your loan. For example, if you have been paying your mortgage for nine years, refinancing the remaining balance into a 30-year mortgage could lower your monthly payments. However, remember that while your monthly payments will decrease, you will end up paying more interest over the life of the loan.
Get Rid of PMI
While removing PMI isn’t technically a method of refinancing your mortgage, it’s worth mentioning as it can reduce your monthly mortgage payments. If you initially put down less than 20% when buying your home, you might be paying Private Mortgage Insurance (PMI) as part of your monthly mortgage payment. If your home’s value has increased or you’ve built over 20% equity, you can contact your lender to remove PMI from your mortgage loan.
Your lender might require a new appraisal to remove PMI, which involves some upfront costs. However, removing PMI can save you hundreds or even thousands of dollars annually. If you have sufficient equity in your home, it’s definitely worth exploring this option.
How do I refinance?
We understand that the thought of undergoing the mortgage process again can be intimidating. Fortunately, since you’re already familiar with the mortgage process, refinancing will be quite similar to your initial mortgage experience, minus the house hunting. To get started, you’ll need to complete a mortgage application and review the financing options prepared by your mortgage loan originator.
Just like your initial loan experience, refinancing requires documentation about your assets, liabilities, and income. Depending on the mortgage program you used when purchasing your home, several streamlined refinance programs require less paperwork and documentation. These include the FHA streamline refinance and VA streamline refinance (also known as the VA IRRRL or Interest Rate Reduction Refinancing Loan).
After completing your application, your loan file will go through underwriting and proceed to closing, similar to when you bought your home. At Mutual of Omaha Mortgage, we guide you through the entire process to ensure your refinance is as seamless as possible.
Your Trusted Chicago Mortgage Lender
If you’re looking to create extra room in your budget, now is an excellent time to explore refinancing options to lower your monthly payments. If you’re ready to get started or would like a no-obligation mortgage analysis, please reach out to us. We’re here to help.
In Chicago, IL, we take pride in offering reliable lending services with a thorough understanding of the local market. Our team is committed to delivering personalized solutions to meet the diverse needs of both homebuyers and homeowners. We strive to provide the best possible advice and options tailored to your unique situation. Whether you’re buying your first home or refinancing your current mortgage, our expertise and resources will guide you through the process smoothly.